Music, book and app downloads may jump in price in the UK soon after VAT changes were announced in the annual budget.
Chancellor George Osborn pointed out in his annual budget speech that companies are currently charged tax at source on digital downloads, through foreign countries like Luxembourg where it is as low as 3 per cent. From 1 January 2015 however, downloads will be taxed in the country they are purchased instead, meaning a 20 per cent VAT charge in the UK.
It's pretty likely therefore that companies will pass on those costs to the user. It was found in 2012 that the UK was losing more than £1.6 billion per year in tax because of app under-charging. The taxes lost between 2008 and 2014 would have been enough to pay for the entire Olympic Games in Britain.
High street bosses have complained that current laws give online retailers an unfair advantage in the market. This change should remedy that issue.
The budget document said: "As announced at budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services. From 1 January 2015 these services will be taxed in the member state in which the consumer is located, ensuring these are taxed fairly and helping to protect revenue."
As download charges rise, the popularity of streaming services like Spotify and Netflix could grow even greater.